Britain to investigate $5bn takeover of defence firm Cobham

Britain will investigate the national security impact of the purchase of defence company, Cobham, by U.S. private equity firm Advent International, potentially delaying or even blocking the $5 billion deal.

Business Minister Andrea Leadsom’s move on Wednesday is not unusual where there are potential security concerns.

This followed British government intervention in the pending acquisition of satellite group, Inmarsat by an international private equity consortium, which includes U.S. firm Warburg Pincus.

Leadsom has issued a European intervention notice, calling for a report from the Competition and Markets Authority (CMA) by Oct. 29, to determine whether Cobham, the maker of air-to-air refuelling equipment, should be sold.

The authority said he could decide to undertake a lengthy inquiry due to Cobham’s role in supporting aircraft such as the F-35 Joint Strike Fighter and Eurofighter Typhoon as well as advanced naval vessels, satellites and military vehicles.

Other deals, investigated on national security grounds, have often been cleared after undertakings from the buyer.

“The CMA will now prepare a report on the national security aspects of the proposed transaction,’’ the business department said.

“This is a statutory process to ensure national security implications of a proposed sale are fully assessed.’’

One of the most open economies in the world, Britain, has sold some highly innovative firms to foreign buyers in recent years, including the semiconductor designer Arm to Japan’s Softbank and pay-TV group Sky to Comcast.

The London Stock Exchange is trying to fend off a $39 billion takeover approach, launched this month by Hong Kong Exchanges and Clearing.

Cobham, launched in the 1930s by a British adventurer and explorer, employs 10,000 people.

It has struggled in recent years, issuing a string of profit warnings in 2016 and 2017.

Advent has a track record in buying British technology, having snapped up electronics company Laird for $1.65 billion in 2018 and Cobham investors approved the takeover on Monday.

Some Cobham operations, such as its Advanced Electronic Solutions unit, have special security agreement status that allows them to bid for U.S. defence contracts.

Cobham Chief Executive, David Lockwood, said on Monday that requirement would disappear under Advent ownership, enabling the group to combine infrastructure and share knowledge more quickly and easily within the company.

Lockwood said he had already held some discussions with government about the takeover but would not go into details.

“Advent is committed to being a responsible steward of Cobham, encouraging its future growth and success,’’ a spokesman for the U.S. group said.

“We will continue to engage constructively and cooperatively with the UK Government in this part of their review.’’

Cobham shares slipped 0.5 per cent, with the stock at 160 pence per share, just below the offer price of 165 pence. (Reuters/) FAT/AIB

“We are close to reaching the limits of what we can achieve through the format of remote formal rounds. If we are to make progress, it is clear that we must intensify and accelerate our work,” he said.

“We need to conclude this negotiation in good time to enable people and businesses to have certainty about the trading terms that will follow the end of the transition period at the end of this year, and, if necessary, to allow ratification of any agreements reached,” he added.

“Any such deal must of course accommodate the reality of the UK’s well-established position on the so-called ‘level playing field’, on fisheries, and the other difficult issues,” he added.

“Such actions undermine the sovereignty of the PRC (the People’s Republic of China) and they represent a gross violation of the fundamental standards of international law fixed in the UN Charter, and we believe they result from nothing else but the desire to settle accounts with a foreign political adversary,” she added.

The attempts to fill the agenda of the UNSC with issues which are outside the framework of its mandate are counterproductive and may lead to a reduction of the efficiency and a weakening of the authority of this organ, which is the most important for the modern system of international relations, Zakharova said.

The United States and the United Kingdom, for their own political purposes, have been making unwarranted comments, interfering and obstructing, and attempted to push for an open video conference in the UN Security Council.

Britain‘s historical link with Hong Kong arises from the period of invasion, colonialism and unequal treaties. Authoritarian is “precisely the word to describe its colonial rule in Hong Kong,” Zhao said, adding that it is after the return of Hong Kong that the residents came to enjoy unprecedented rights and freedoms.

“To quote its own words, we urge the UK to ‘step back’, reject the Cold-War mindset and the colonial mentality, recognize and respect the fact that Hong Kong has already returned to China as a special administrative region,” he said.

The national security legislation for Hong Kong is an essential step to safeguard national sovereignty, unity, territorial integrity and the foundation of “one country, two systems.” Only when national security is ensured can “one country, two systems” and Hong Kong‘s stability and prosperity be guaranteed.

Zhao said this legislation only targets a very narrow category of acts that seriously jeopardize national security and has no impact whatsoever on Hong Kong‘s high degree of autonomy, the rights and freedoms of Hong Kong residents or the legitimate rights and interests of foreign investors in Hong Kong.

“What threatens Hong Kong‘s stability and prosperity is precisely some external forces colluding with local anti-China rioters in conducting activities in the SAR that jeopardize China‘s national security,” he said.

He said China deplores and opposes the unwarranted comments and accusations by the British side, and has lodged stern representations with Britain.